Updated: Mar 7
The economy has taken some serious hits from the impact of the pandemic. However, just like in any market cycle, how investors react to the challenges is key. While there are several factors to take into consideration when evaluating which market to invest in, as many markets are still strong for investing, remaining vigilant and monitoring current data trends is always a must.
When rental rates begin to fluctuate, this can be due to a number of reasons. On a high level, the concept of supply and demand seems simple. But the reality is that there are a number of macroeconomic factors within each respective area that can be catalyst for how the multifamily industry is impacted. Understanding these factors will better guide you in recognizing if a market presents opportunity or should be passed over.
The data below is a good example, as you’ll see that there are some surprising trends. Most likely, these fluctuations are being caused by two primary impacts from COVID. First, people are fleeing major market metros to submarkets, where they likely can find more space, at lower prices. Secondly, unemployment further drives this trend as the struggle for families to stabilize their incomes continues. Many are moving to reduce expenses and/or find alternative employment opportunities.
In turn, areas that would not seemingly be likely to attract an influx, or what’s also known as a net migration, are. The migration is what drives rental prices up, as the demand is increasing. In contrast, the markets that tenants are leaving, are reducing rents in an effort to hold onto their occupants as the economic impacts begin to take shape.
As of September 2020, these are the 7 least and most impacted cities by year-over-year asking rents:
Top 7 Cities with Highest Rent Increases:
7. Huntsville, AL
Annual Change in Effective Asking Rent (Sept. 2019 – Sept. 2020): 6.6%
Average Rent (1 BR): $821
Current Unemployment Rate: 6.6%
6. Grand Rapids, MI
Annual Change in Effective Asking Rent (Sept. 2019 – Sept. 2020): 6.7%